Air deal likely to push tickets up

Airfares across the Tasman could rise by up to 25 per cent if the proposed deal between Air New Zealand and Qantas gets approval, an expert in aviation competition says.

Both airlines insist their proposal would merely reduce overcapacity and costs, with no impact on prices.

Fares are constrained by competition from Pacific Blue and Emirates and the low barriers to entry into the market, they say.

But Auckland University economics professor Tim Hazledine, who studies airline markets, disputes that.

His review suggests the cheapest one-way fares could rise by up to $80.

He bases his conclusion on analysis of fares for some 1000 transtasman flights plus capacity, capacity utilisation and market share data in the public domain.

"It seems that just pulling the capacity off might produce a 5 to 10 per cent increase in prices - which might or might not be reasonable if the market is over-competitive," he said.

"The concentration effect could be another 10 to 15 per cent on top of that," he added, referring to the prospect that the two biggest players in the market would, in effect, become one.

His analysis suggests that a 15 per cent increase would take Air NZ's $323 one-way Tasman Smart Saver fares to Sydney to $371.45. A 20 per cent increase would make the fare $387.60 and 25 per cent would bring it to $403.75. These prices exclude airport fees and Government charges.

The airlines want to cut into the thousands of empty seats that cross the Tasman daily. Air NZ and Qantas estimate there are 6300 empty seats on Tasman routes each day - on all the airlines, not just them. That equates to 11 empty Airbus A320s making two return trips a day.

Normally the job of deciding who is right - professor or airlines - would be that of the Commerce Commission.

But for the two airlines' proposal to join forces on capacity and fares (and carve up their combined revenue with respect to the Tasman routes) they are instead seeking authorisation from Transport Minister Annette King under the Civil Aviation Act.

When contacted by the Herald, the minister's office was unable or unwilling to shed any light on how her ministry would determine the matter.

Wellington International Airport was also unable to discover much about the process the ministry would employ or what chance the airport would have to contest assertions in support of the plan.

The airport company has, however, obtained an opinion from Professor Michael Taggart, of Auckland University law school, which warns that "there is no magic wand the minister can wave" over the agreement as a whole that would render it immune from Commerce Act scrutiny.

The commission appears to be keeping a watching brief. Two of its staff attended a lecture by Professor Hazledine on the issue last week.

But all the commission would say yesterday was that it was not involved in the application from Air NZ and Qantas to the Minister of Transport for authorisation of a code-sharing arrangement.

"Once that process is completed, any arrangements between the two airlines that are not authorised will continue to be subject to the Commerce Act. The commission will consider whether it should investigate any such arrangements when the outcome of the authorisation process is known."